November 2022 Farmer Update

AFFCO

FARMERS’ UPDATE

NOVEMBER 2022

KIWI TO THE BONE

A MESSAGE FROM OUR CEO & NATIONAL LIVESTOCK MANAGER

Dear supplier, Well here we go again! We are well into Spring now and gearing up for a new season.

It has certainly been a challennging twelve months both from a farming and processing perspective. The Winter months and into early Spring have seen unusually large volumes of rain. While we thought this may have set grass growth up for a good early start to the season, it has been a challenge. It has simply been too wet, cold and gloomy.

Consequently, pasture growth has been slow with some real sunshine only beginning to show itself in the last few weeks. However this sun has been enough to see livestock condition begin to improve which is good for our suppliers.

It’s been the same old story at the plants with COVID constraints and labour shortages making it hard to run at normal speeds. At the time of writing we are again seeing increased COVID related staff absences. This year the workforce at our plants have done a fantastic job working long weeks to catch up on the big tail of livestock. We thank them for their commitmentand we got there in the end!

The new processing season will have its challenges but if COVID can stay away from the plants the season should be smoother. Let’s cross our fingers! Logistics remains concerning with global container shipping still uncertain and very expensive. In the last season AFFCO led the way with us chartering five refrigerated vessels. This allowed us to move several thousand tonnes per ship and keep our plants processing at peak demand.

The world has been through two and half years of government stimulus packages pushing money into the global economy. While this was nice while it lasted it has come to an end. The result has been rampant global inflation and the game of musical chairs has stopped. While our red meat remains in demand, there is no doubt consumers around the world have less money and the ability to pay for it. AFFCO recently attended the SIAL trade fair in Paris and MICA (Meat Importers Council of America) conference in Chicago. This was a valuable op-

portnity to re-connect with customers face-to-face aftre three years of COVID related travel restrictions, and it has given us considerable insight into the current state of our export markets which are all being impacted by cost of living pressures. Continuing COVID related lockdowns in China are further reducing the demand for lamb which is predominantly a restaurant/food service item, while retail demand for beef in China has been less impacted because it is more often consumed at home.

All of this means there is currently increasing downward pressure on export market pricing, which hasn’t been fully offset by the depreciating NZD, and this will flow into reducing farm gate Schedules over the coming weeks. Lamb and mutton are under some pressure. While beef will also see Schedule drops they will likely be less severe than lamb. In saying that, AFFCO forecasts that the “bottom of the Schedule” still looks reasonable and the sector remains in good heart.

On a positive note, the 2023 outlook for our manufacturing beef exports to the USA has improved, with demand for New Zealand manufacturing beef expected to increase due to reduced USA domestic production. Long running and widespread USA droughts have resulted in the forward kill of domestic USA beef, which is now going to require a period of herd rebuilding, and therefore likely lower USA domestic production during 2023 and beyond.

We hope this newsletter finds you and your families in a healthy and happy space leading in to the Summer months. AFFCO is extremely appreciative of your business and the partnership you our suppliers have with us.

Finally we would like to wish you and your families a safe Christmas and New Year and good luck for the season ahead.

Regards Nigel & Tom

MARKET UPDATES In our last market update in May, we reported we were starting to see the impact of events such as China’s COVID lockdowns, and the war in Ukraine, affect buyer sentiment. Since then these issues have manifested further, and with the added weight of global inflation, energy shortages in Europe, and a weaker currency in China, the global marketplace is a far more difficult place.

As discussed in Nigel and Tom’s article, the SIAL trade fair in France and the MICA conference in Chicago provided valuable insight. There is less confidence in continental Europe and UK markets with buyers forecasting a significant drop in foodservice demand – restaurants, cafes etc – in the coming 12 months.

Consumers are under extreme cost of living pressure as inflation and energy costs limit their willingness to spend. In the US, demand remains steady, however there is some concern around how long this will continue so buyers are again being more conservative.

Overall, while all markets are showing declines in demand, pricing and buyer confidence, Beef remains slightly more resistant than other proteins such as Lamb. This is simply due to the versatility of Beef products across foodservice and retail, and the fact that a significant volume of beef globally is consumed in lower-cost products such as mince and beef patties.

That said, in the US there is a significant cull of beef and dairy livestock on the back of prolonged droughts and resultant limitations on irrigation in some states. At the same time South American beef is being imported heavily into bonded coldstores to capture first access to the 2023 quota volumes in January.

The result is a current over-supply of Beef product (and limited coldstore capacity) which is driving prices down.

While this is an immediate issue, various presentations at the MICA conference showed that the large cull and limited South American quota should see stronger demand and pricing in Q2 and Q3 of 2023.

In recent months, lamb demand has fallen dramatically on the back of extremely poor buyer confidence.

Europe and UK drive demand for lamb legs, and China has in recent years led the way on lamb forequarters. With both region’s economies suffering, lamb demand is low and securing orders for late season lambs has been extremely difficult.

However, in the past week pricing has reached a level where some buyers in China and Europe are prepared to purchase and take a position on inventory. The situation in China is of course something we are monitoring closely. Should China look to relax their COVID restrictions, this would trigger a significant uplift in lamb demand – something current in-market inventories would struggle to supply.

At time of writing, US demand and pricing for lamb racks remains at a sound level.

While there is increasing media and industry rhetoric around improved global shipping capacities and reducing rates, this is largely limited to the scale East-West trade routes. Large container vessels and deep water ports throughout the Asia - USA – Europe trade lanes means that and a drop in international trade volumes quickly translates into cheaper rates.

New Zealand operates with smaller container vessels with few shipping services. As such the North-South trade routes remain fully utilised and shipping capacities, and rates, are not improving as dramatically, with most shipping lines reluctant to see their current margins reduced. We believe the industry faces another 12 months with a difficult shipping environment, and AFFCO is working closely with our sister companies - Open Country Dairy and Talley’s – to utilise our combined scale with those shipping lines who have a long-term strategic commitment to New Zealand.

We are so excited to welcome you to our site at Mystery Creek on the 30th of November, 1st - 3rd of December. We are at site F95/F97, the same as last year, just down from Gate 1.

To use the "Express Check In" to the AFFCO Hospitality site, please have the AFFCO Livestock APP downloaded, or print the Hospitality pass from your supplier account on the AFFCO website.

We have Hub Espresso with us again, remember to call in on your way past to grab a coffee.

NZFAP AND NZ FAP PLUS The New Zealand Farm Assurance Programmes (NZFAP and NZFAP Plus) provide confidence and certainty world-wide that the meat and wool produced from New Zealand’s sheep, beef and deer farms is authentic, genuine and safe.

The company that now owns and manages these programmes, New Zealand Farm Assurance Incorporated (NZFAI) have just released a video that explains the two programmes.

WATCH HERE

2022 RECRUITMENT CAMPAIGN

The images above are from our integrated, multi-channel recruitment campaign that launched in October. As referenced in the top article, we like many other industries are experiencing labour shortages in our plants and we are investing a huge amount of money in our recruitment drive.

Utilising various platforms including TikTok and Meta (Facebook & Instagram) as well as traditional media including fliers, bus backs and radio.

FROM THE ARCHIVES As AFFCO has been a New Zealand Institution since 1904, we have a wealth of history to celebrate..

Many of our suppliers would have seen a selection of these photos at the various Field days as they feature as a part of our site. This photo was taken in a series that documented the First Post War Shipment of Chilled Beef from New Zealand on the “Dominion Monarch- August 1952. This photo features the Hon. KJ Holyoake (M.P), as they were loading the trolley to load the ship.